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Creativity: the Measurable and the Immeasurable HOLYWOOD’S HIDDEN ADVANTAGE - Creative Suits ASPERA 2012 – JUL 2 ND – 5 TH QUT.

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Presentation on theme: "Creativity: the Measurable and the Immeasurable HOLYWOOD’S HIDDEN ADVANTAGE - Creative Suits ASPERA 2012 – JUL 2 ND – 5 TH QUT."— Presentation transcript:

1 Creativity: the Measurable and the Immeasurable HOLYWOOD’S HIDDEN ADVANTAGE - Creative Suits ASPERA 2012 – JUL 2 ND – 5 TH QUT

2 How do you measure creative success?

3 How do you measure creative $uccess?

4 Depends on you look at it…

5 Visible Creative:‘The Magic’ Actors Artists Actors Artists Auteurs Wizards Auteurs Wizards

6 The Invisible Creatives: The Business Presidents of Studio, CEOs, COOs, CFOs, Marketing, Lawyers, Agents, Consultants, Market Research, Distributors, Heads of Production, Producers, Executive Producers, And everyone one who works for them etc etc etc etc etc etc etc ….

7 One source of tension… ‘creatives’ vs ‘suits’ ‘creatives’ vs ‘suits’

8 And soooo MANY ‘suits’!

9 Root cause of such tension? Power? Creative control? Ego?Artistic expression???

10 The Money

11 “We have a tendency to demonise the suits”.

12 One thing is for sure… For any film or movie to actually get made and become successful The ‘creatives’ and the ‘suits’ need to share the same vision Its about collaboration

13 The biggest phallacy… …and this is where Hollywood leaves other film industries in the dust is ……

14 …that ‘suits’ are not Creative TOO!

15 Film is a Creative Industry Developing a film project is a creative process Raising the finance is a creative process Making the film is a creative process Marketing and distributing the film is a creative process And in all parts it is about telling a story effectively!

16 A Case of Creative Financing

17 The movie broke even theatrically Production costs: $94 million Prints & Advertising (P&A) costs: $44 million (U.S. $22 million + ROW $22million) Total costs: Est. $138 million Gross Box Office: $274 million (world) (Cinemas keep approx. 50%) Split: $137 million each.

18 German Tax Shelter Investors in German-owned films can claim an immediate 100% tax deduction.

19 Paramount sells a German company the copyright for $94 million. Paramount Pictures leases back the film for $83.3m with an option to re- purchase at a later date. Paramount’s nets $10m ($94m - $83.3m) profit which covers ATL salaries of Angelina Jolie’s ($7m) and the other principal cast. German company gives Paramount total control signing a production service agreement and a distribution service with the studio. Paramount nets $12 million under the UK’s Section 48 pre-production tax relief – key locations shot in UK and British actors including Daniel Craig. Paramount gets $65m in pre-sales to six territories where the Tomb Raider game is popular with teenage boys. Paramount gets $7m from TV licensing fees from Showtime (owned by Viacom which also owns Paramount) for the U.S. cable TV rights. $10m profit + $12m tax relief + $65m pre-sales + $7m licensing fee = Total $94 million. Source: Epstein 2005.

20 THAT IS CREATIVE FINANCING! By comparison what is mostly done here in Oz is fairly pedestrian.

21 Historic Case of Creative thinking The Birth of Paramount

22 America 1913 It is a time of tumultuous change. A new epoch in the movie industry is about to begin…. U.S. economy is about to enter alpha growth phase during WW1. Urban populations are growing rapidly. Movies are booming fuelled by the arrival of movie stars & the cult of celebrity. Larger theatres dedicated to movies are being constructed – The Strand in New York 3,000 seats. Embryonic cinema circuits are about to emerge.

23 America 1913 Battle to control the industry. The Trust v the Independents. The Trust’s business model is based around the short film. It operates the only national film distribution company – the GFC. Europeans are making longer 5-reel films with impressive production values = much bigger budgets U.S. Producer Adolph Zukor (Famous Players) believes the future is the feature length film following the success of his film ‘Queen Elizabeth’. Independent U.S. producers are under-capitalized - they have to pre-sell the rights to film exchanges in order to finance their films. Very few bankers & financiers have any knowledge or understanding of the movie business. Producers have no collateral to use as security for loan finance.

24 The Problem Feature length films cost $10,000-$20,000 to produce in the U.S. How can under-capitalized U.S. producers raise the money to make feature length films to compete with Europe?

25 Enter…Paramount Pictures National distribution.

26 Formed 1914 W.W. Hodkinson & 4 States-Rights Film Exchange owners. Zukor covertly buys shares and takes over Paramount by 1916. Paramount signs 25-year deals with producers for their entire output. Paramount gains exclusive distribution rights to their films. Famous Players (Zukor) agreed to provide 52 movies per year to Paramount; Jesse L. Lasky to provide 30 films; Pallas and Morosco supply 22 films. Paramount has 104 films to distribute annually – enough to meet any theatre’s programming needs for a year @ 52 weeks x 2 feature films per week Paramount provides each studio with an advance guarantee of $20,000-$25,000 on each five-reel film produced. Paramount agreed to advance the cost of prints & advertising. All advances (production costs and P&A) were to be recouped first from gross film rentals. After that Paramount charged a 35% distribution fee (25% covers company overhead + 10% profit).

27 Costs and Profits After P&A advances and distribution fees were deducted from film rental revenues the net split 65% (studio) :35% (distributor). Average net film rentals for Paramount films in the U.S. market in 1910s was $100,000 per movie. Famous Players received $65,000 (65% split of $100,000) on average per film. Production costs averaged $35,000 per film. So Famous Players’ net profit averaged $30,000 per movie. Foreign sales averaged $10,000-$20,000 per film. Sources: Hampton 1931 reprinted in 1970 pp. 119, 122; Donahue 1985 pp 14-16.

28 Outcomes? Paramount solved the producers’ perennial problem of raising finance through a brilliant piece of creative thinking. Paramount quickly became market leader and the dominant firm during the silent film era.

29 The historical lesson for filmmakers worldwide? Creativity in Hollywood is not just about telling stories on-screen.

30 The Great Gatsby Baz’s trailer….circa 2012 7o 7o Paramount trailer circa 1974 PQT0 PQT0

31 Netflix Reinvented the video store

32 Order online - DVD by mail Take out your subscription online - convenient 24/7 ordering Do one-time online survey of your movie & TV preferences The Queue pre-ordering system – checklist up to 50 titles you want The Queue optimises Netflix video inventory – less stock-outs Less customer dissatisfaction - you always receive a DVD you want Next-day postal delivery + return pre-paid envelop – NO late fees You rate titles you watch and get recommendations based on likes 110,000 titles – wider selection than any video store

33 Benefits to Netflix The Queue & customer ratings provide depth knowledge on users. Better understands demand & post-purchase satisfaction than rival video stores = better purchasing decisions = lower costs. Personalized recommendations enable Netflix to steer customers towards back-catalog titles. Typically, video store rentals are 65% new releases (expensive to acquire) and 35% older titles. Netflix is the inverse – 65% older titles and 35% new releases = lower acquisition costs. Lower operating costs than bricks and mortar video stores.

34 Case: Web Series

35 Kate Modern on KM is a teenage soap web series spinoff of YouTube hit series Lonely Girl 15. Bebo – UK social networking site 40+ million female users aged 13-24 years. KM - 4 minute webisodes attracted 54 million views over 2 seasons Production costs UK 6,000 pounds per episode. Profitable before production because it pre-sold sponsorship and product placement. Orange, Toyota, Cadbury Crème Eggs, Microsoft, Procter & Gamble paid up to 250,000 pounds for brands to be integrated into storylines.

36 Even kids can do it…

37 Case: Crowdfunding

38 Three British schoolboy filmmakers think-outside–the-box to find a way to get their film made Discover a little-known Jules Verne novel Clovis Dardentor. It is in the public domain – they want to make it into a movie. Innovative twist on crowd-funding they set up Anyone can buy a credit as a producer of the film for UK 10 pounds. Have raised over UK 105,000 pounds. Attracted many celebrity sponsors – Jude Law, Stephen Fry, Whoopi Goldberg, Jeremy Irons, Rowan Atkinson, Sir Ian McKellen, Joanna Lumley… Attracted national publicity in the UK for their crowd funding efforts. Sources: Pidd 2009; Sources: Pidd 2009;

39 Nice piece of creative thinking lads!

40 Key Lessons? The big annual magnet – Cannes - everyone goes – industry who’s who… There-in lies the problem – for the ROW – the cluster is annual. Hollywood is not just the ‘creative capital’ for making the magic. It is also the black hole at the centre of the entertainment universe. It attracts the best talent from everywhere … there is critical mass. Everyone you need to get movies made is there. In Hollywood – the underlying strength is you are IN the cluster. But there are clusters in London, Sydney, Paris, Tokyo, Rome…..

41 Ask yourself this…. So is it just the cluster’s critical mass in LA or is it also the M.O. (modus operandi) ? Do we really see this kind of creative thinking from the suits in other parts of the world?

42 Rest of the World (ROW) We see fantastic innovation on-screen from ROW filmmakers. What percentage of the great off-screen innovations in the movie & TV industry were created outside Hollywood? Can anyone here name any?

43 “Suits” Must Be Creative TOO!

44 If the ‘suits’ don’t create….


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